CFO insight and analysis written and compiled by DeloitteCONTENT FROM OUR SPONSORPlease note: The Wall Street Journal News Department was not involved in the creation of the content below.

Text Size

Regular

Medium

Large

Google+

Print

Federal Executive: Strategies for Managing Sequestration

Sequestration is producing budgetary uncertainty and forcing government leaders to do more with less as they strive to sustain mission performance. While the current environment is creating unprecedented challenges, it also offers federal CFOs and other agency executives opportunities to rethink strategies and processes, question the status quo and do things differently, according to Jan Lane, a director in Deloitte Consulting LLP, speaking during a Deloitte webcast, “Sequestration: Strategies for the New Normal.”

“While approaches such as freezing discretionary expenditures, delayed spending and funding shifts can work on a short-term basis, federal agency leaders need to focus on long-term spending and allocation strategies that can help agencies effectively perform their missions in an environment of ongoing and increasing budgetary constraints,” noted Ms. Lane.

Innovative approaches to mitigate the impact of sequestration was the focus of the webcast discussion, which addressed how to develop a more strategic approach to allocating increasingly limited funds by, for example:

Changing the current mindset around program funding;

Employing new frameworks and tools to help use current funding as efficiently as possible; and

Finding innovative financing approaches to help improve the efficacy of agency investments.

“A critical element underlying this new approach is the use of data-driven insights and metrics to identify the programs and activities most closely aligned to the agency’s goals and to evaluate their performance,” said webcast presenter Jitinder Kohli, a director at Deloitte Consulting LLP and former head of the Productivity and Structural Reform team at the British Treasury. Federal CFOs have an important role in leading this effort.

Historically, federal agencies have tended to focus on the purpose of their activities and programs, and then on defending them from cuts once they’re funded. In the current environment, with sequestration, there is greater demand to shift agency focus to results―how the programs are performing and their actual impact on fulfilling mission objectives. “While agencies still need to fulfill their missions, guard against fraud and abuse and keep effective controls in place, agencies need to foster a new culture, focused on outcomes,” said Mr. Goldstein, who was former COO and Assistant Comptroller General at the General Accounting Office. “When agencies think their job is about achieving outcomes, they can focus their resources on making that difference, making them more efficient spenders and more mission-effective,” he added.

Leadership, however, will be needed to change agencies’ focus. Indeed, responses to a poll question during the webcast reflect the importance of leadership to driving culture change. Nearly one-third (31.5%) of 1,500 respondents indicated ‘leadership’ as the critical factor in helping their organization deal with continued cuts and funding uncertainty. ‘Technology and innovation’ was cited by 18.5% of respondents. “Federal agency leaders have to think hard about what they’re trying to achieve, be clear about their vision for change and then be sure their vision is communicated loud and clear through all levels of the organization,” said Mr. Kohli.

Align Resources to Goals Based on Achieving Impact

The next task in developing an outcomes-based funding strategy is setting targets based on five to ten areas determined to have the greatest impact on achieving mission goals. “When government agencies are clear about their goals, that brings a focus within the agencies and among their stakeholders, which itself has a big impact on achieving those goals,” said Mr. Kohli.

With goals clearly set out and aligned to the vision, the agency can identify the activities likely to be most effective in meeting them and then align their resources to those priorities. Funding decisions should also be evidence based. “As budgets get tighter, it becomes more important to determine where to make cuts by considering the available evidence that shows what appears to be working and what appears not to,” Mr. Goldstein said.

Take a Dynamic Approach to Implementation

An effective implementation of an outcomes-based model can reduce costs and increase program impact. Agencies should think of implementation as a repeated cycle, not as a one-off event. This dynamic implementation approach provides executives an opportunity to reconvene to analyze whether goals are on track and to make any necessary adjustments. Performance data should be used to allow executives to refresh strategies in real time. An example of this dynamic implementation model is the Department of Housing and Urban Development HUDStat program, in which senior leadership meets regularly to review ongoing results against the outcomes. Questions asked at these meetings include, ‘What is going on in this space? What has been accomplished? Are we making the progress we need to? If not, why and what more do we need to do to make a difference?’

Develop an Accountability Framework

An outcomes-based funding strategy also requires accountability, both for funding impact and to ensure that individuals focus on doing more of what works most effectively. Establishing accountability frameworks can help agencies evaluate progress on goals by measuring them against real-world results, as with the HUDStat model. Similarly, agencies should hold individuals within their organization accountable for performance and achieving objectives, as in the private sector. Individual goal-setting aligned to agency objectives and evaluation of progress against those goals should occur on an annual basis.

Measuring What Matters

“Agencies tend to count what’s easy to count, and they measure what’s easiest to measure,” observed Mr. Kohli. Instead, they should determine the important measures they need to have―those that align to and measure the results of their goals. For example, the traditional approach to measuring the impact of job training programs would be focusing on the number of people served by the programs. The more important data to collect and measure would be the extent to which joblessness changed as a result of the training programs. Establishing and applying measures that matter requires being able to collect data that shows what’s happening and is timely. It also requires applying advanced analytical tools to present the data in a manner that a decision-maker can use to evaluate and improve program performance.

When webcast attendees were polled on what area of their organization they would like more insight, 34.6% of the 1,096 respondents indicated “Finance: Find opportunities to save money so I can avoid cuts and afford more.” An innovative approach to funding that federal CFOs and finance managers can use to increase the impact of agency investments while reducing dollars invested is the ‘Pay for Success’ funding model, which is gaining popularity at the state and local government levels. Social Impact Bonds (SIBs) are an example of this expenditure approach, in which the agency defines a set of desired outcomes, and makes the funding of the program or activity dependent on achievement of those outcomes. “This funding model gives providers a great deal of freedom about how to achieve objectives, while the government pays only if it’s able to see targeted outcomes being achieved,” said Mr. Kohli.

About Deloitte Insights

Deloitte’s Insights for CFOs provides financial executives a customized resource to help them address the strategic, operational and regulatory issues they face in managing their finance organizations and careers, with top-line digests, research, perspectives and technical analyses.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.